Government losing millions of dollars on import of used cars

Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) Chairman Siddiq Misri has said the government is losing millions of dollars on import of used cars. The Association's chairman in a statement said the dealers abused the "Personal baggage & gift scheme" meant solely for facilitating non-resident Pakistanis to import their own personal cars from Saudi Arabia, Middle East, UAE, Europe, on transfer of residence to Pakistan or for gifts to their family members in Pakistan.
He said that while commercial import of used cars are totally banned under the import policy, dealers are commercially importing used cars from Japan, simply by submitting photocopies of unidentified passports at the time of clearing and no verification of any kind takes place at any stage in the customs department as to the existence of the expatriate status of the passport holder.
The auto industry has been continuously presenting its case to FBR and Finance and Commerce ministries that government is losing millions of dollars on import of used cars every year. In budget 2014-15, the FBR did raise the duty rates on import of used cars under SRO 577(I)/2005 but only by an abysmally low rate of 10 percent (as against rupee devaluation of 70 percent). Therefore, even after this revision, the government is losing $1,950 to $3,781 on import of each used car and the government has lost approximately $68 million in the fiscal year 2013-14, he added.
PAAPAM Chairman asked why is the government helpless in revising the duty and taxes rates to a respectable level and why does it succumb to the pressure of strong used car importers' lobby by allowing them to falsely import vehicles in the name of overseas citizens? The duty and taxes rates fixed in SRO 577 for up to 800cc cars is US $4,800 as compared to duty & taxes on import under normal tax regime of US $8,596. On a three-year old used car, depreciation allowance of 36 percent is also allowed.
The concept of depreciation itself is unacceptable because the cost of a 3-year old car is already over 40 percent lower than a new car. After the depreciation allowance of 36 percent on three-year old cars, duty and taxes on up to 800cc car under SRO 577 reduces further, from $4,800 to $3,072, as compared to duty and taxes under normal tax regime of $5,501, thereby inflicting a loss of $2,429 to national exchequer on import of every 800cc car.
Similarly, the government is losing $3,781 on import of 1000cc used cars, $2,006 on 1300cc, $1,950 on 1500cc, and US $2,065 on 1800cc used cars, respectively. He said that industry has taken up this issue time and again at various ministry levels and requested the government to rescind or at least revise the fixed duty and taxes rates in SRO 577 to an equitable level, but our voice remains unheard. This huge subsidy given to used car traders' mafia is causing unforeseen and heavy losses to Pakistan's automobile and auto parts industries, as these traders are abusing the import policy meant for non-resident Pakistanis to import their own used cars under "personal baggage, transfer of residence or gift schemes". It is well-known that this policy is being massively misused by the used car traders for many years, but neither the FBR nor ministries of commerce or finance have taken any counter-measures to stop this menace.
One of the reasons given by the government officials in favour of concessionary import of used cars is to provide cheaper cars to the general public, although used cars are banned by the government in the interest of saving above losses. It is important to mention here that, even with these huge subsidies, the imported cars are not cheap at all and three old imported used cars are far costlier than their engine capacity equivalent new locally produced cars.
The Senior Vice-Chairman PAAPAM, Mumshad Ali, stated that this is the right time for the government to put an end to anti-auto industry policies, as it is the government's responsibility to provide conducive environment to both current and new investors in the automobile sector. In the last two years, three new manufacturers have entered the Pakistani automobile market and some more are in the pipeline.
Through a resolution passed at its Managing Committee meeting held on 4th December, PAAPAM has requested the Prime Minister and Minister for Finance to seriously look into this issue as such policies are destructive for the local auto industry. The government must take a serious look at manufacturing sector and tell us how they can explain the current slump in the industrial groups, and what plans they have for its revival. The meeting resolved that the real test of economic leadership lies in getting the wheels of manufacturing to start turning again, adding that if the government wishes to provide subsidy to Pakistanis living abroad, then it should provide subsidy on purchase of locally produced cars to non-resident Pakistanis, as this will create a win-win situation for the Pakistani expatriates as well as the local automobile, auto parts and engineering industries of Pakistan.